Heading into the end of 2019, the easiest way to look at the bond market was through the lense of "consolidation."  In other words, the trading range had been growing progressively narrower since September--so much so that a breakout seemed like it would be one of the first items on 2020's agenda. 

Why do we care about a consolidation and a breakout?  Simply put, while bonds have been able to stay even flatter than this for even longer on a few occasions in the past, it's not normal and arguably not preferable.   An absence of healthy movement can create just as many complications as too much movement.  So when we shift from a static, confused, uncertain, narrow trading range, what follows is often a higher energy move in one direction or the other.

It's hard to say if January 7th would be too soon to see evidence for a range breakout.  That's certainly possible considering I'd been targeting the beginning of next week as the jumping off point for 2020 momentum for several months now.  But the combination of current events may prevent the natural course of momentum--whatever it may have been.  For instance, it doesn't make a ton of sense to aggressively push yields higher if tensions in the Middle East continue to rise.  Neither does it make much sense to get too bullish on bonds with high levels of supply ahead, the potential for de-escalation, and an unknown slate of incoming economic data.

Bottom line: Middle East tensions act as a bit of a brake on whatever the actual momentum would be--probably a brake with a moderately positive influence on bonds to the tune of 10-15bps of 10yr yield.  Economic data and supply will continue to have an effect in this environment, but because of the geopolitically-driven bond rally 2 days ago, it will be very difficult for this week's events to break the range.  The most significant development that's within a likely trading range would be the breaking of the ceiling at 1.85%.  That's where Friday's big opening gap (a visible separation between the lowest levels of one trading session and the highest levels of an adjacent session--not common) occurred, and it's where traders will be looking most intently if we happen to lose any ground this week.

Losses or gains will have an eye on the week's most important remaining data and events.  One of those pieces of data arrives this morning in the form of ISM Non-Manufacturing, and one of the events arrives this afternoon with the start of the Treasury auction cycle.  Today's 3yr notes aren't quite as important as tomorrow's 10yr auction, but nonetheless provide the first major gauge of 2020 demand.